Housing's hidden crisis

The Sun may have rejected Gordon Brown after his performance in Brighton, but the speech did provide some comfort for the construction sector. The C word didn’t make an appearance; instead, minister after minister underlined their commitment to investing in Crossrail, education and nuclear power, among other noble causes. Of course, promises cost nothing, and one might wonder how Labour will keep the money flowing after public spending as a percentage of GDP is halved by 2014. Nevertheless, Labour seems to have been successful in choosing the battlefield for the ballot.

One area where the ministers didn’t say much was housing. Not so long ago, Brown made a speech pledging to build 3 million homes by 2020. Those targets weren’t brought up again this week, which isn’t surprising given that the industry and its bankers are struggling to fund 100,000 of them when the population needs 250,000. A report from the Town and Country Planning Association and the Smith Institute says that by the next election we’ll be a million homes short of meeting long-term demand. And that’s after we’ve thrown unprecedented amounts of public money at the problem, and been given admirably joined-up thinking from the Homes and Communities Agency. This has provided the industry with an array of new tools, such as giving councils the power to develop and to swap land for equity, and bringing institutional investors into the private rented sector.

There have been signs of life in the housing market, and rights issues from the biggest firms, such as Barratt and Redrow, may indicate growing confidence. But let’s not kid ourselves. The traditional private housebuilding model is a long way from being restored to health. The cost of building a house and its attendant section 106 obligation now accounts for about 66% of value, compared with 50% in 2004. And as this week’s Citywatch says, housebuilders paid too much for their present landbank. All those rights issues are intended to give them funds to buy land they can actually make a profit on. Until they have it, and more realistic 106 agreements, schemes are hard to stack up. Many would agree with the TCPA report’s view that it could take years before we reach 2007’s output of 170,000 units.

There are two more things to toss into the cauldron: government housing cash has peaked this year, and if the Conservatives win the next election then councils’ housing targets will be scrapped. The Tories say local authorities will be given incentives to set ambitious new ones. But housebuilders are said to be worried by the prospect: and so they should be – another seismic convulsion in the planning process is not going to be a rapid affair. But is that a good enough reason to stick with Gordon? Over to you …

Many in the housebuilding industry would agree with the TCPA report’s view that it could take years before we reach 2007’s output of 170,000 units

Another fine mess

It’s beginning to look like the construction industry is made up of a bunch of crooks, isn’t it? No sooner has the Office of Fair Trading fined 103 construction firms for tender misbehaviour, than it has turned its attention to another sector of the industry. This week it’s the turn of the recruitment agencies, who were fined £40m. The agencies followed the lead of construction firms in arguing that it all happened a long time ago, but a bit more handwringing wouldn’t go amiss. Then we have the Serious Fraud Office fining bridge builder Mabey & Johnson for corruption overseas. The SFO, like the OFT before it, is now intent on digging up more of the industry back garden in search of buried skeletons. Brace yourself for more bad headlines.

Denise Chevin, editor